I am in a bit of a pickle with this because if yfwd means yarn foward ...does that not mean i am making an extra stitch? and then its telling me that that is the pattern...so if i go back to doing the first row then what am i going to do with the extra stitches at the end?

and am i doing the pattern right? does it mean knit 3, purl 1, knit 2, purl 1, knit 2, purl 1, knit 2, purl and then knit three at the end?

Yes, the yarn forward is creating an extra stitch but you will also lose that stitch when you pass it over the next two knit stitches.
So for the instructions between the asterisks in row 2, you will
yfwd, k2 sts and then pass the yfwd over the last 2 knitted stitches.
And yes, you right about row 1, repeat the *k2, p1*. Patterns often use asterisks, parenthses, brackets or even a combination of these to indicate instructions that are repeated.

No, when you pass a stitch over another, it decreases, it's like when you pass a st over to bind off. Yfwd is another way to write YO, and I just wrap the yarn over the needle to the back. Then you knit the next 2 sts and take the yo with the L needle and lift it up over the 2 sts that you knit. Keep it a little loose so it's easy to lift and it'll probably make a little hole, but it's supposed to. If you're not really sure how to pass it over, look on the Decreases page at sl 1, k1, psso - you're not slipping a st, but the idea is the same, to move it over the next st/sts.